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All India Chartered Accountant’s Society

All India Chartered Accountant’s Society. 4th Workshop on Service Tax (Session XX II) Date: 23 July, 2011 Dr. Sanjiv Agarwal New Delhi FCA, FCS, ACIS(UK) Jaipur. This Session Covers. Accommodation Services w.e.f. 1 May 2011 Section 65(105) (zzzzw)

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All India Chartered Accountant’s Society

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  1. All India Chartered Accountant’s Society 4th Workshop on Service Tax (Session XX II) Date: 23 July, 2011 Dr. Sanjiv Agarwal New Delhi FCA, FCS, ACIS(UK) Jaipur

  2. This Session Covers Accommodation Services w.e.f. 1 May 2011 Section 65(105) (zzzzw) Restaurant Services w.e.f. 1 May 2011 Section 65 (105) (zzzzv) Health Care (Medical) Services upto 30 April 2011 Section 65 (105) (zzzzo)

  3. Accommodation Services • Introduced by Finance Act, 2011 • W.e.f. 1 May, 2011 (Notification No. 29/2011-ST dated 25.4.2011) • Section 65(105) (zzzzw) of Finance Act, 1994 • Accommodation- Not defined • To provide lodging or sufficient space • Room, group of rooms or buildings in which some one may live or stay • Lodgings • Available space for occupants in a building • Some where to live; some where to stay ; lodging; housing; room; space, place (English Dict. UK) • Dwelling or place of temporary residence (Wikipedia)

  4. Accommodation Services • Includes both residential as well as non residential purposes- Prem Narayan Barchhiha v Hakimuddin Saifi (1999) 6 SCC 381 SC [M P Accommodation Control Act, 1961]. • Means a building or a part of building which is used for residential or non residential purposes, but not as a factory or for industrial purposes- Sitaram Shashan v Johrimal (1972) 317 AIR Allahabad [U P (Temporary ) Control of Rent and Eviction Act, 1947)] • Garage, a permanent roofed structure and which is part of a building would come within the purview of accommodation. • R.N.Gupta v Sarla Khandelwal AIR 74 Allahabad 377 [UP (Temporary) Control of Rent and Eviction Act, 1947)]

  5. Accommodation Services Service Provider – Receiver • Service Receiver - Any person • Service Provider - To be any of the following - Hotel Inn Guest house Club Campsite Others, by whatever name called • None of the above defined in statutory provisions • Club or association defined u/s 65(25a)- Any person or body of persons providing services, facilities or advantages primarily to its members, for a subscription or any other amount, but does not include …….

  6. Accommodation Services Taxable Service [Section 65(105) (zzzzw)] Any service provided or to be provided to any person by a hotel, inn, guest house, club or campsite, by whatever name called, in relation to providing of accommodation for a continuous period of less than three months. Taxability Tests • Service provider • Accommodation • Declared tariff • Period

  7. Accommodation Services Basic Ingredients of Taxable Services • accommodation services can be provided to any person • service should be in relation to accommodation • service should be provided by / accommodation must be at any of the following – • hotel • Inn • guest house • club, or • campsite • Such places may also be known by any other name such as resort, motel, service apartments etc. • accommodation must be provided for a continuous period of less than three months. • accommodation for a period of three months or more are not covered in the scope of taxable services.

  8. Accommodation Services Coverage Criteria Vide Notification No 31/2011-ST dated 25.4.2011, actual levy of service tax shall be restricted to cases where the declared accommodation tariff is of Rs. 1000 per day per room or higher. Once this criteria is met, service tax would be levied irrespective of trade or tariff discounts given to guests. • Taxability not to be affected when actual amount charged from guest/ customer is less than Rs. 1000 as service tax is levied on actual amount charged.

  9. Accommodation Services Accommodation for continuous period of three months • Cases of continuous period of 3 months or more to be excluded from scope of tax Service Tax. • ‘Continuous stay’ is crucial • Broken period, even if more than > 3 months to be taxable. • Holiday home taken by a bank or organizations for >3 months – not taxable. • Rooms used as office on monthly may rent not covered.

  10. Accommodation Services • What is declared tariff • Relevant in determining liability to pay Service Tax. • Includes • Charges for all amenities provided in unit of accommodation like – • furniture • air conditioner • refrigerator • charges for all electronic gadgets installed in room • (TRU Letter dated 25.4.2011) • any other facility provided by hotel as a part of stay • cost of meals included in declared tariff. • Does not include • Any discount offered on published charges for such unit • Cost of extra bed (TRU Letter dated 25.4.2011) • Declared Tariff v. Published charges

  11. Accommodation Services • Valuation • Gross amount billed to guest • Optional abatement vide Notification No. 34/2011 Service Tax • dated 25.4.2011 @ 50 percent ; effective rate comes to 5 • percent + cess • Abetment to be taken if, no cenvat credit is availed on inputs • and input services / Benefit of Notification No. 12/2003 not • taken. • Actual tax to be paid on amount charged ,i.e, declared tariff net • of discount, eg, • Declared tariff Rs. 2000 • Actual charged Rs. 1500 • Service Tax to be charged on Rs. 1500

  12. Accommodation Services Valuation Issues Clarified (Circular No 139/8/2011-TRU Dated 10.5.2011) • It is possible to levy separate tariff for the same accommodation in respect of a class of customers which can be recognized as a distinct class on an intelligible criterion. However, it is not applicable for a single or few corporate entities. • Where the declared tariff includes the cost of food or beverages, Service Tax will be charged on the total value of declared tariff. But where the bill is separately raised for food or beverages, and the amount is charged in the bill, such amount is not considered as part of declared tariff. • When the declared tariff is revised as per the tourist season, the liability to pay Service Tax shall be only on the declared tariff for the accommodation where the published/printed tariff is above Rupees 1000/-. However, the revision in tariff should be made uniformly applicable to all customers and declared when such change takes place. • For the purpose of service tax, luxury tax  has to be excluded from the taxable value (or declared tariff).

  13. Accommodation Services Per Kerala High Court Order dated 16.6.2011 in W.P. ( C) No 14054/2011 (E) Kerala Classified Hotels and Resorts Association & Others v Union of India & Others • Admitted Interim stay against any coercive steps of recovery of service tax or against any proceedings for imposing penalty for a period of two months in relation to following taxable services- • Accommodation Services (zzzzw) • Restaurant Services (zzzzv)

  14. Accommodation Services Export /Import of Service for Accommodation / Restaurant Services Export • Service provided in relation to immovable property situated outside India Import • Service provided by person from out side India in relation to immovable property situated in India

  15. Accommodation Services Person Liable • Any hotel, guest house, club etc providing accommodation services for short term to guests are liable to pay service tax.

  16. Restaurant Services • Introduced by Finance Act, 2011 • W.e.f. 1 May 2011 (Notification No. 29/2011-ST dated 25.4.2011) • Section 65(105) (zzzzv) of Finance Act, 1994 • Gross amount charged by the restaurants to customer shall be charged to service tax, subject to abatements/ exemptions.

  17. Restaurant Services • Not defined in statutory provisions • Literal meaning - a place where people sit and eat meals that are cooked and served on premises • Restaurant means premises in which is carried on principally or wholly the business of supplying meals or refreshments to the public or a class of the public for consumption on the premises but does not include a restaurant attached to a theatre. [Weekly Holidays Act,1942] • Restaurant means any premises, not being a restaurant situated in a hotel in which the business of sale of food or drink to the public is carried on and such premises, at the beginning of any month, are equipped with, or have access to, facilities for air conditioning. [Expenditure Tax Act, 1987].

  18. Restaurant Services • Food– Any substance / material consumed to provide nutritional support for the body or for pleasure (Wikipedia) Nourishing substance that is eaten, drunk or otherwise taken into body to sustain life, provide energy, promote growth; more or less solid nourishment distinct from liquid (American Heritage Dictionary). • Beverage– A drink or beverage is a liquid which is specifically prepared for human consumption, fills basic human need, forms part of culture of human society (Wikipedia). • Alcoholic beverage – A drink containing ethanol (alcohol) – beer, wine, spirits; legally consumed world over subject to restrictions.

  19. Restaurant Services • Taxable Service [65(105) (zzzzv)] • Any service provided or to be provided to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises. • Tests for Taxability for Service Provider • Restaurant • Air Conditioning • License to serve alcoholic beverages

  20. Restaurant Services Legislative Intent The new levy is directed at services provided by high-end restaurants that are air conditioned and have license to serve liquor. Such restaurants provide conditions and ambience in a manner that service provided may assume predominance over the food in many situations. It should not be confused with mere sale of food at any eating house, where such services are materially absent or so minimal that it will be difficult to establish that any service in any meaningful way is being provided. (TRU Letter dated 28.2.2011)

  21. Restaurant Services • Essential Features for Taxability • Taxable services should have following essential features- • services shall be provided by a restaurant or any establishment rendering such service and called by whatever name (say, a club, a pub, eating joint fulfilling criteria, coffee houses etc) • service can be provided to any person • restaurant should have a facility of air conditioning in whole or any part of the restaurant during any time during the financial year . • restaurant should have licence to serve alcoholic beverages, whether actually serving such beverages or not. • eligible restaurants providing services in relation to serving food or beverages including alcoholic beverage, or both in its premises shall be liable to service tax.

  22. Restaurant Services Air Conditioning • Whole or any part of the restaurant to be air conditioned • In case of partial air conditioning – Service Tax applicable on whole of restaurant / services. • Not necessary that facility of air conditioning is available round the year. It can be for at any time during the year after 1.5.2011.

  23. Restaurant Services Following Activities / Services are out of Service Tax net • Amount paid by customer ex gratia (tip to staff member) • Room service • Sole of goods at MRP • Service from non AC / non alcohol licensed restaurants • Services from / at outside restaurant premises (if cost centre / profit centre is separate).

  24. Restaurant Services CBEC Clarifications (Circular No. 139/8/2011-TRU dated 10.5.2011) • Service Tax is leviable on the service provide by a restaurant which satisfies two conditions: (i) it should have the facility of air conditioning in any part of the establishment and (ii) it should have  license to serve alcoholic beverages. Within the same entity, if there are more than one restaurant, which are clearly demarcated and separately named, the ones which satisfy both the criteria is only liable to service tax. • The taxable services provided by a restaurant in other parts of the hotel e.g. swimming pool, or an open area attached to the restaurant are also liable to Service Tax as these areas become extensions of the restaurant. • When the food is served in the room, service tax cannot be charged under the restaurant service as the service is not provided in the premises of the air-conditioned restaurant with a licence to serve liquor. Also, the same cannot be charged under the Short Term Accommodation head if the bill for the food will be raised separately and it does not form part of the declared tariff.

  25. Restaurant Services Valuation • Following exclusions from value allowed – • Service charges meant for staff performance (tips) • State value added tax • Other statutory taxes / duties • Counter sale of goods • Home delivery charges • Abatement @ 70 percent from gross value including service charges, if no cenvat credit on inputs/ input services availed and benefit of Notification No 12/2003 not taken (Notification No. 34/2011-ST dated 25.4.2011)

  26. Health (Medical) Services • Introduced by Finance Act 2010 w.e.f. 1.7.2010 [Section 65 (105) (zzzzo)] • Vide Notification No. 24/2010-ST dated 22.6.2010 • Withdrawn by Finance Act, 2011 • Exempted w.e.f. 1.5.2011 vide Notification No 30/2011-ST dated 25.4.2011 Coverage into tax net • Finance Act, 2010 had introduced the levy of service tax on the following health services- • health check up undertaken by hospitals or medical establishment for the employees of business entities (corporate health checkup) • health service provided under health insurance schemes offered by insurance companies.

  27. Health (Medical) Services Business Entity [65(19b)] • Business entity would include any - • association of persons • body of individuals • company, or • firm • Individuals excluded from the scope of business entity. • Definition of taxable service cover the employees of business entity who makes the payment of taxable services.

  28. Health (Medical) Services Taxable Service [Section 65(103) (zzzzo) [prior to 1.5.2011] Any services provided or to be provided by any hospital, nursing home or multi-specialty clinic,— • to an employee of any business entity, in relation to health check-up or preventive care, where the payment for such check-up or preventive care is made by such business entity directly to such hospital, nursing home or multi-specialty clinic; or • to a person covered by health insurance scheme, for any health check-up or treatment, where the payment for such health check-up or treatment is made by the insurance company directly to such hospital, nursing home or multi-specialty clinic.

  29. Health (Medical) Services Essential Conditions for Taxability • Services shall be provided by any - • hospital, or • nursing home, or • multi specialty clinic • Services should be provided to • employees of a business entities, or • to a person covered by health insurance scheme. • In case of service to employees, service may be in relation to health check up / preventive care. • In case of persons covered under insurance scheme, service may be in relation to health checkup / treatment • Payment shall be made – • employer being business entity • by directly insurance company, but • not by employee or insured person.

  30. Health (Medical) Services Scope of Services • corporate health check up schemes • medi -claim insurance policies (cash less polices) • regular check up of employees such as in hotels/ airlines/ IT industry etc. • health / medical perquisites by employers such as for employees wherein employees bears the cost.

  31. Health (Medical) Services Services when not taxable The service shall not be taxable in the following circumstances- • service provider is not a hospital, nursing home or multi specialty clinic. • service provider is an individual doctor or an in-house doctor • service provider is a hospital belonging to same business entity whose employee is being provided service • preventive care in case of insured person • Payment made by the patient or individuals • Payment made by the insured person and later reimbursed by the insurance company

  32. Health (Medical) Services Amendments made by Finance Act, 2011 Clinical Establishment (Section 65(25a)] Clinical establishment means ­ • a hospital, maternity home, nursing home, dispensary, clinic, sanatorium or an institution, by whatever name called, owned, established, administered or managed by any person or, body of persons, whether incorporated or not, having in its establishment the facility of central air-conditioning either in whole or in part of its premises and having more than twenty-five beds for in-patient treatment at any time during the financial year, offering services for diagnosis, treatment ,pr care for illness, disease, injury, deformity, abnormality, or pregnancy in any system of medicine; or • an entity owned, established, administered or managed by any person or body of persons, whether incorporated or not, either as an independent entity or as a part of any; clinical establishment referred to in sub-clause (I), which carries out diagnosis of diseases through pathological, bacteriological, genetic, radiological, chemical, biological investigations or other diagnostic or investigative services with the aid of laboratory or other medical equipment, But does not include an establishment, owned or controlled by – • the Government; or • a local authority;

  33. Health (Medical) Services Taxable Service [Section 65 (105) (zzzzo)] Services provided or to be provided to any person, - • by a clinical establishment; or • by a doctor, not being an employee of a clinical establishment, who provides services from such premises for diagnosis, treatment or care for illness, disease, injury, deformity, abnormality or pregnancy in any system of medicine; Taxable services include- • Any service provided by a clinical establishment having the facility of central air­ conditioning in any part of the establishment and more than 25 beds for in-patient treatment at any time of the year; • Diagnostic services provided by a clinical establishment with the aid of laboratory or medical equipment; and • Health-related services provided by doctors, not being employees, providing health-related services from the premises of a clinical establishment.

  34. Health (Medical) Services Withdrawal/ specific Exemption • Taxable services provided under clause (zzzzo) shall be exempt from whole of Service tax w.e.f. 1.5.2011 vide Notification No. 30/2011 – ST dated 25.4.2011. • Service tax not applicable on health (medical ) services w.e.f. 1.5.2011, not even to services covered under pre Finance Act, 2011 provisions

  35. Health (Medical) Services Legal Position after exemption • Old provisions of clause zzzzo hold good till 7.4.2011 only as from 8.4.2011, Finance Act, 2011 was enacted and clause zzzzo substituted. • But amended definition is effective from 1.5.2011 • Between 8.4.2011 and 30.4.2011 (both dates included), there is no taxable service as such under clause zzzzo. • W.e.f. 1.5.2011, services under clause zzzzo are fully exempt vide Notification 30/2011-ST dated 25.4.2011 • Will old definition continue till 30.4.2011 – No.

  36. THANK YOU FOR YOUR PRECIOUS TIME AND ATTENTION Dr. Sanjiv Agarwal FCA, FCS, Jaipur asandco@gmail.com Sanjivservicetax@gmail.com

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